DAO Token Hoarding Study Reveals Challenges to Decentralization

A recent study conducted by researchers from the University of Texas at Austin and Princeton University sheds light on the impact of tokenization on decentralization within Decentralized Autonomous Organizations (DAOs). The findings highlight the challenges posed by token hoarding and its implications for DAO autonomy.

According to the research, as DAOs expand in size, participants may increasingly view DAO tokens as investment assets. This shift in mindset raises concerns about the diversion of subsidies away from users, hampering their active involvement. Additionally, the study warns about potential control takeovers by investors seeking a majority stake, jeopardizing the platform's governance.

In the context of DAOs, token-based governance replaces traditional leadership, granting participants distributed authority through tokens, acting as voting power. This framework aims to prevent exploitation by DAO managers, as tokens represent voting influence rather than ownership rights.

The research paper emphasizes the distinction between tokens and securities, highlighting that tokens are primarily a claim to platform services rather than revenue entitlements.

To ensure the success of a DAO, alignment among participants regarding purpose becomes crucial. They must be willing to spend tokens to vote for actions that advance the shared purpose or to acquire valuable services and utilities that benefit the community. The researchers employed modeling techniques to analyze the impact of user growth and tokenization on DAO outcomes. Their primary finding suggests that tokenization enables the transfer of ownership from initial equity holders to the platform's users. However, this shift eliminates a centralized entity capable of subsidizing network participation.

This circumstance creates opportunities for investors to treat purpose-driven DAOs as conventional stocks, potentially undermining the original intention of decentralization.

Lead researcher Michael Sockin expressed concerns about cryptocurrencies losing their viability as payment mediums, stating, "The ability to generate high returns has undermined cryptocurrencies as means of payment, as people are reluctant to spend them. This situation can revert us back to a paradigm reminiscent of Amazon and Apple, which is precisely the issue we were attempting to move away from.